The ongoing conflict in Ukraine continues to provide conflicting reports. On Friday, there were rumors Putin said some positive progress was made, but shortly thereafter airstrikes were reported in west Ukraine.

Stocks are up slightly, embracing some of the positive headlines and oil at $107 ... way off $130 seen this week. This is a tough environment - a cease-fire could light a fire under the stock markets and with the recent correction, there could be liftoff - at the expense of bonds.

The usual suspects are weighing on bonds but there are conflicting scenarios. Tapering and higher rates are ahead while hot inflation continues but you also have slowing growth, low consumer sentiment and the elephant in the room ... Ukraine/Russia.

Preliminary Consumer Sentiment for March will be released at 10:00 and will be closely watched as it hovers near 10-year lows. We find Consumer Sentiment a major reason why the Fed can't hike so much.

The Fed will purchase up to $2.292B in mortgage-backed-securities today as the bond-buying program enters its final days. There are two operations at 10:00 - 10:20 a.m. ET and 11:30 - 11:50 a.m. ET. The FNMA 30-yr 2.5% and 3% coupons will see the bulk of the buying at the 10:00 slot.

Technically, the FNMA 30-year 3% is now below support at par/$100 and it could take some bad news to get it back to the level. We shall see what takes place in the next few days ahead of next Wednesday's Fed statement release. The 10-year yield has risen to a critical ceiling of 2.00%. The German 10-year bund yield hit 0.31% - a fast move from -0.10% just a few days ago.

The uptick in inflation expectations is why rates continues to worsen. Now we have the Fed next week that may try and talk about balance sheet reduction. Candidly, we think this would be an enormous policy mistake - but it would not be the first time this Fed made a policy mistake. Back in 2018, they hiked three times when Consumer Sentiment was at a 20-year high. Now they are going to hike rates and shrink the balance sheet while consumer sentiment sits at recessionary levels?

With prices close to, but beneath par/$100 - and the 10-yr right at 2.00% - we are hope to see a bounce higher in prices. And price decline from here will lead to $100 being a ceiling of resistance and about as good as rates can get.